BBC Round 2: It Turns Out Peston Missed Out the Oil

Bella readers may remember, (our piece of 8th October), that we had written to the BBC to complain about Robert Peston’s statement that “The big question about the Prime Minister’s plan to hand more control over taxes, spending and welfare to the four nations is how far this would end the subsidy of Scotland, Wales and Northern Ireland by England, and especially by London and the South East.” This statement flew in the face of the fact that Scotland had subsidised the rest of the UK by £150 billion or more since the Barnett formula was introduced: (for the derivation of the £150 billion figure, see the links in our previous piece.)

Many people expressed interest in what the BBC’s reply would be. We now know: a copy of their reply is at B below, and it is a very revealing document. They are not yet admitting that they got it wrong: but in their attempt at self justification, they have cut away the ground beneath their own feet.

Our reply to the BBC’s response is at A below. But to summarise, we now know some of the fatal weaknesses in Peston’s logic which led him to get it so wrong: for example:

a) Incredibly, the way he did his calculations excluded Scotland’s North Sea oil revenues.

b) He used a logically fallacious argument for deciding when a country is being subsidised.

c) And last, but not least, he based his conclusions on a single year.

We await with great interest to see what the BBC’s next justification will be.

Why is it so important to pursue the BBC on this point? It is not just the matter of principle, that the BBC should not mislead.

Statements like Peston’s feed an almost general belief held down South that England has subsidised Scotland. Unfortunately, this belief is not confined to south of the Border. As an example, consider the following totally wrong statement in the Conservatives’ submission to the current Smith Commission: “Whilst we know that even at its height North Sea revenue did not even cover the Scottish Welfare Bill”.

A: Our response of 24th October 2014 to BBC

To BBC News website

Reference CAS- 2952961-7ZTS5R

Dear BBC Team

Thank you for your letter of 15th October 2014.

There are, as we explain below, what can only be described as schoolboy howlers in your attempted justification of Robert Peston’s statement about how far current fiscal changes would “end the subsidy of Scotland, Wales and Northern Ireland by England”. But before we explain why, can we draw attention to the gross discourtesy to one of us (Margaret Cuthbert), in that your reply to a letter signed by both of us was only addressed to one (Jim Cuthbert).

Looking at the individual points in your letter:

a) You say that there are many assumptions involved in the argument we put forward. Assumptions are indeed inherent in any analysis of this kind, whether ours or Robert Peston’s. In fact, our assumptions, for example on the period covered, are entirely reasonable. The period we covered was basically the period of operation of the Barnett formula- and this is a perfectly reasonable choice, since it was the Barnett formula that Robert Peston was talking about. On the other hand, as we now know from your latest letter, Robert Peston was basing his statement on a single year’s figures: even though, when he talked about the “end” of subsidy, the viewer could only interpret this as a statement about a process which had been going on for some time. It is therefore both misleading and wrong for him not to have considered at least several years’ data.

As regards the other assumption which you specifically mention in your letter, on how oil revenues might have been used, we made a perfectly justifiable and indeed conservative assumption: the assumption that Robert Peston made, which (as we will show below), is that Scotland effectively did not get any oil revenues, is totally unreasonable.

b) You justify Robert Peston’s position by an argument which looks at the ratio of public expenditure per head to Gross Value Added (GVA) per head for the constituent countries of the UK. But GVA is not the same as tax receipts, and variations in GVA are not obviously a reasonable proxy for variations in tax receipts: so it would have been more accurate if Robert Peston had looked at tax receipts.

c) But more than this, there is a critical flaw in Robert Peston’s use of GVA. If you go back to the ONS Statistical Bulletin to which you refer, you will see that the estimate of GVA quoted by Robert Peston has been calculated in such a way that the North Sea oil related GVA which cannot be allocated on income grounds, is allocated to extra regio, and hence is not allocated to any of the constituent countries of the UK. But taxable profits are within this element of North Sea GVA. The effect is that the proxy for tax receipts which Robert Peston has used actually omits from the Scottish figure Scottish North Sea oil revenues. This is a major and nonsensical error.

d) In addition, there is a grossly fallacious argument in the second quotation from Robert Peston which you give in your letter. The argument in that quotation implies that if one area has a lower ratio of public expenditure to income (as measured by GVA) than the other areas, then this means there is an income transfer from the first area to the others. In other words, the first area is subsidising the others. To see why this argument is fallacious, consider the following very simplified counter-example. Suppose we have five areas, each with GVA=300. Suppose that tax is 1/3 of GVA, so each area pays 100 in tax. Suppose, however, that public expenditure in areas A, B, C, D, and E is equal to respectively, 80, 90, 100, 110, and 120: so overall, the same amount is raised in tax (500) as is spent by means of public expenditure (500), and the national budget is therefore balanced. Then the situation is as in the following table:

A

B

C

D

E

GVA

300

300

300

300

300

Tax

100

100

100

100

100

Public expenditure

80

90

100

110

120

Country surplus(+) or deficit (-)

20

10

0

-10

-20

Public expenditure as % of GVA

27

30

33

37

40

On the basis of Robert Peston’s logic, given the above figures, area A would be regarded as subsidising all the other areas. But in fact, both areas A and B are in surplus, (and therefore transferring resources to other areas, given there is a balanced budget in this case). Area C is in balance, (and therefore neither subsidising nor being subsidised), and only areas D and E could be regarded as being subsidised. What this example illustrates is that you just cannot use the kind of logic in Robert Peston’s quote to determine whether an area is subsidising or being subsidised, even in the artificially simple case when the overall national budget is in exact balance.

Of course, the situation is even more complex when there is an overall national surplus, or as is more common, an overall national deficit. In these circumstances, one has to use something like the approach adopted in our calculations to work out whether an area is being subsidised or not. The application of the Peston approach in these circumstances is potentially even more misleading.

We note that you have not repeated the quotation from Robert Peston which we gave in our original letter, and which was the basis of our complaint. You have in no way justified the blatant error made in that original quotation: in fact your attempted justification compounds the situation with further errors, and shows that Scottish North Sea revenues are actually excluded from the data on which Robert Peston based his statements.

Finally, we note that you also refer us to Stephanie Flanders’ discussion of related issues in her 2012 piece. We do not propose to give a full critique of that piece here, other than to note that her analysis is also deficient in several respects. For example, she again only looks at a single year. She mistakenly equates “deficit” with “subsidy”. And in her treatment of Scottish oil revenues, she mistakenly gives equivalence to Scotland receiving a population share of North Sea revenues, and Scotland receiving a geographic share. In fact, there is no equivalence between these scenarios. The former has no legal status: whereas the latter is implied by the Geneva Convention, and was widely accepted by almost all parties in the run up to the referendum.

Given the deficiencies in Robert Peston’s piece, we think there should be a public clarification and apology for the serious errors the BBC has made on this issue. If you are not willing to do this, we will be grateful if you would indicate to us to whom we should refer this matter to be taken further. We assume that the BBC has some arrangement whereby serious issues as regards professional standards can be referred to a higher authority.

Yours sincerely,

Dr J R and Mrs M Cuthbert.

B: Reply from BBC to our original letter:-

15 October 2014

Dear Dr Cuthbert

Reference CAS-2952961-7ZTS5R

Thank you for getting in touch about Robert Peston’s blog post on the financial implications of devolution.

There are many assumptions put forward in your argument, including the period covered and how oil revenue might have been used.

Mr Peston uses two sources of data in his blog.

“Well, spending on public-sector services per head is highest in Northern Ireland, £10,900 and it is lowest in England, at £8,500. The figure for Scotland – beneficiary of the famous or notorious Barnett Formula, which formalises an income transfer from England to Scotland – is £10,200.”

“English gross value added per head is highest, at just under £22,000, and it is lowest in Wales at £15,400. The English enjoy public-service spending per annum equivalent to under 40% of the income they generate, whereas annual outlays on public services in Wales are equivalent to more than 60% of nationally generated income per head. The ratios for Scotland and Northern Ireland are just over 50% and not far off 70% respectively.”

The piece is not intended to examine hypothetical scenarios based on historical assessments, but is an attempt to look at the problems that are likely to arise from an attempt to disentangle the current funding arrangements.

Robert Peston’s predecessor, Stephanie Flanders, did some analysis on this issue a couple of years ago, which might be of interest. She also touched on the issue of oil revenues:

Thank goodness for Dr JR and Mrs M Cuthbert who can at least do their sums. Westminster has to rely on eejits who get it wrong everytime. But instead of holding up their hands and admitting stupidity, intention to mislead, commit fraud and steal, asking for forgiveness and promising to get ‘it’ right from now on they just keep digging bigger holes for themselves to fall in. This would be amusing in a farcical comedy but it’s the state of government in the United Kingdom and it makes me physically sick. The day they are finished can’t come soon enough.

This North Sea Oil is more of a curse than a blessing, do you think the London Power Elites would be so desperate to keep Scotland if it produced bananas instead of oil ? Just as they fought the Falklands War, do you think they were interested in the native inhabitants, the 12 puffins who wanted to remain Bwitish or the 200 Billion barrels of oil surrounding the islands ?

I would like to see the information provided by the Cuthberts much more widely publicised – especially to those who voted No – and thus propose to add a summary and a link to this page on unionist blogs and newspaper web sites whenever it is appropriate, starting with LabourList. It is time this pernicious nonsense about Scots being subsidised was finally scotched so let’s use Auntie BBC’s blinkered replies as an appropriate vehicle for forcing people to think about the issue.

First-class analysis – but I’m not sure which “higher authority” one can take a complaint about the Beeb to. Of course, there ought to be a “court of appeal”, given the BBC’s status and charter commitments (which it blatantly and routinely contravenes).
There’s supposed to be a kind of ‘watchdog’, but it has no teeth. The Beeb’s managers continue to misinform, disinform and lie because they know they can get away with it.
The possibility of creating an independent and unbiased public service medium that would begin to tell the painful truth about the UK’s subservience to financial and corporate domination and the never-ending fabrication of wars and bogus threats to our security was one of the greatest potential bonuses of independence. It could have been part of a new, publicly affirmed, constitution.
Thanks to Bella and and others we might just get it still.

And you….each one of us independents have to take responsibility to get the message to the uncertain. Join the Greens or whoever rocks your boat and if you are able get out and do your bit. Volunteers are always needed to canvass, leaflet and man stalls.

The higher authority is the BBC Trust. The deliberately difficult complaint procedure goes like this:

1) Original complaint to relevant BBC department.

2) 1st reply from BBC department (2 weeks)

3) Second complaint (always necessary as 1st reply is a fob off, see above for example, this is where the Cuthberts are)

4) 2nd reply from BBC department (2 weeks)

5) If you are still unhappy, then you can now complain to the BBC Trust as you have completed steps 1 & 3. However, your complaint to the BBC Trust has to be under 1,000 words ( I kid you not). Jim and Margaret are going to struggle here condensing all this information.

A reply from the BBC Trust can take up to 4 months.

At that point it’s forgotten about. No public apology or mention of the failings of the original article will be made or if they are, so much time will have passed it will be irrelevant.

Thank you Dr J R and Mrs M Cuthbert for taking the time to pursue the Beeb and hold them accountable for their lies and misrepresentation. It gives me such hope knowing there are fantastic, articulate people out there willing to volunteer their time and in such a constructive way.
I very much look forward to reading your next update!

If the BBC cannot be held to account and are in breech of their charter to be fair, balanced and educational, then I can only see a mass non payment protest.

Such a protest would require organisation and leadership. As yet no one has come forward offering this. There are plenty of candidates in the YES movement, I hope someone/a group/organisation takes this forward. I would certainly take part.

Untruth will be the undoing not just of the BBC but of the Union. The BBC are stoking anti-Scottish sentiment in England with the false myths they are propagating. While intending to shore up the Union, their misinformation campaign is actually undermining it.
The Union is breaking up by itself, literally disintegrating. Soon enough, a misinformed and increasingly xenophobic English public, led to resent Scotland and voting for parties like UKIP, will have no great desire to maintain the Union anyway. Lies always rebound on you, with unintended effects.
I find all this rather sad. What a difference from what was on offer at the referendum if there had been a Yes majority: independence for Scotland by amicable means, in a spirit of social and economic cohesion – even solidarity – with England and the other component parts of the old UK.
Political independence looks inevitable anyway, in the long run, and will come about sooner rather than later. Unfortunately, there is now an increased risk that when it happens it will not be as amicable as it would have been. If that turns out to be the case, it will not be Scotland’s fault, and I am sure the hostility will not come from the northern side of the border. But it will be there in the south – we already saw snatches of it during the referendum campaign.
If that turns out to be the case, the BBC will have a lot to answer for, on account of the kind of attitudes it is propagating in England towards Scots and others, through its ‘misinformation services’. Think of the way it has given a far greater voice to UKIP than UKIP ever merited, think of the kind of attitudes UKIP fosters, and see the underlying encouragement of resentment and animosity towards Scotland as part of the same matrix of ideas … A matrix of ideas that is gradually coalescing into an ‘ideology’ that can only be described as ‘neo-Fascist’. Like all such things, it remains hidden, under the surface, camouflaged by superficial bonhomie (think of Farage’s public persona) … but just wait till it gets power.
We should not be resenting the truly great country which is England as we seek our independence in a positive and non-belligerent way. Rather, as we follow that path, we should be helping to save it from itself. The vision of social and economic harmony with other parts of the old UK is important to maintain, and we want it to be there when we do attain our independence.
I still hope the SNP will put togather an Alliance with the Greens and other left-of-centre groups in Scotland, with Plaid and other sympathisers in Wales, and with similar groups in England. Then this Alliance can field candidates across the UK (with the possible exception of Northern Ireland), offering the voting public that is understandably fed up with Labour, the Conservatives and the LibDems a real alternative to UKIP at the 2015 General Election.

As you say, albatrosstraveller1, if Northern Ireland could be included, all the better. I agree with you about how much everyone there has suffered. My reservation arises because I would not like to see the Alliance seeming to be on one side of the ‘divide’ in NI rather than another. I thought putting up candidates there might cause a problem in regard to which parties or movements in NI the Alliance could reasonably ally with, without falling into that trap.

Whereas it would be easy to ally with Plaid in Wales, and support their aspirations for independence, it is impossible to talk about ‘independence’ in NI in the same way. That would immediately bring us into the Republican versus Unionist divide, with its various implications, denominational and other.

In fact, NI seems (to an outsider like myself) to be a whole different situation. I don’t suppose any really want ‘independence for NI’ – one side wants union with Dublin and the other union with Westminster. So we might not have much traction there.

I suppose the Greens do exist in NI, and that their members come from all backgrounds? Maybe there are other groups like that as well? As you say, if we could find a way that broke down the old ways of politics, and heralded in a more all-inclusive approach that would appeal to reasonable people on all sides, that would be terrific. Even if we could only make a small advance in that direction to begin with, this would already be very positive …

However, I have to admit that I don’t know enough about NI politics to answer these questions. So I am very happy to leave it to others to make better informed suggestions than I could.

I am assuming that Jim and Margaret will make, or already have made, a submission on this crucial issue to the Smith Commission. The Smith Commission must be made fully aware that Scotland has subsidised the rUK during the lifetime of the Barnet Formula.

Thank you Dr J R and Mrs M Cuthbert for taking the time to pursue the Beeb as mentioned above. History has shown the pioneering spirit of the Scots and although the result reported for the referendum was a no, left me heartbroken, I can honestly say that I am proud to be Scottish.

The BBC should hold it’s head in shame, to add insult to injury the recent revelations of how the BBC’s Children in Need has invested the money raised, £96m in stock portfolios and that it did NOT use that money to help the most vulnerable and needy children in the UK. Absolutely disgusting.

Thank you Jim and Margaret for your hard work and courage. Please fight on for us. By pursuing this issue you enable us to speak with authority when people ask whether Scotland would be better or worse off financially if it became independent. It also exposes the bias of the BBC and its inability to reform itself.

This is why I cancelled my TV license. How dare, those fools at the biased bbc expect us Scots to pay for them broadcasting their lying correspondents propaganda. Lucky for us ,our countrymen and women are more intelligent, and can see right through their crap. All Scots should cancel their TV licenses, due to the bias against us. Hit them where it hurts……the coffers. Maybe there will be less paedophiles on the payroll !

It´s just amazing how much rubbish a person can write and still not reply at all to any of the points raised. The issues are clear to read and understand, even for those that do not wish them to be read or seen. We should have had enough of this by know and we all (our Nation) should be moving forward on our “OWN” as a Nation. NOW IS THE TIME TO BECOME ONE VOICE ONE NATION. We will otherwise continue down the road of continuous debate, and this will achieve nothing, ACTION is what is required. The people’s voice and wishes of Scotland

I totally agree, now is the time for moving forward as a nation and taking what is rightfully ours. The issues, as you so rightly argue, are plain to see; Peston is just not willing to absorb the exact wording, he only wants to see what he perceives as should be written. It’s time for indiscriminate refusal to pay the exorbitant TV license fees. Let the BBC submerge below the surface of intelligent reporting and indulge in it’s farcical bias elsewhere out of the sight of decent Scots. I believe it’s time for a new television station that is willing to report without any influence from any faction.

Thank God for the erudition and determination of the Cuthberts! Having complained several times over the past few years about BBC distortions and downright lies, I finally chucked in the towel because of their anodyne and dissembling responses. I’m afraid that only direct political action by the SG is the only thing that will work. Think of Greg Dyke being punted by the machinations of Labour and Alistair Campbell..it can be done!